Columbia Metals expects Lluvia production this year

The 1990s weren’t kind to some low-grade gold projects, and one of those was the Lluvia de Oro mine in northwestern Sonora state, Mexico. It operated for less than three years under two owners, and served as an object lesson in how gold mining at the economic margin is a very tough business.

But one thing about failed gold mines: the gold doesn’t go anywhere. Columbia Metals (COL-V, CBMLF-O) is now looking at bringing the deposit back into production, with the small innovation of mining and processing the way the project was designed to be run. It shows that in this gentler age of US$600 gold, the economic margin has shifted a bit, but doing it right is still the only way to survive.

Columbia acquired Lluvia from Chicago-based junior Tara Gold (TRGD-O), paying US$4.5 million to Tara by the end of 2008, and subject to regulatory approval, it will issue Tara 1 million of its shares.

Tara kept a 20% net cash flow interest, which Columbia can buy out for $5 million (in 1% bites, each to cost $250,000) within two years of the TSX Venture Exchange approving the share issue.

Lluvia de Oro was an open-pit, heap-leach gold mine that produced 42,000 oz. gold between 1996 and 1998 under two operators, Great Lakes Minerals and Santa Cruz Gold. It was plagued by technical problems that led to low metal recoveries — around 59% — and high production costs, and also endured a Nio winter in 1997, where heavy rainfall played havoc with both mining and leaching.

Attempts at the time to fight those costs were counterproductive. Crushing was reduced, which only meant that material too large to allow leaching was placed on the leach pad. Original metallurgical designs had prescribed crushing all the ore to less than 25 mm, but according to the surviving records, as much as 45% of the ore that went on the pads was not crushed at all, and some of the rest very ineffectively.

Added to that, blasting patterns in the pit were loosened to save drilling and explosive costs, causing broken muck to be oversize. Naturally almost none of the gold in large fragments is leachable, with the result that the leach pad at Lluvia is estimated to have 640,000 tonnes grading 0.53 gram per tonne — leachable, if it’s crushed.

In 2006, Columbia had the leach pad sampled, including chip samples from the boulders and test pits of the finer material in the pad. Altogether 295 samples averaged 0.438 gram gold per tonne, with 0.06% copper. The metallurgical testing done in the 1990s before production began showed recoveries as high as 81% for a 25-mm crusher run.

So Columbia’s thinking is to crush the oversize material now on the pad and re-leach it, with the expectation that there is enough gold remaining in the mined rock to support early gold production. Once that is working, unmined resources near the surface could be taken out of open pits and placed on the pad.

Columbia has now reported a measured and indicated resource estimate of 2.4 million tonnes grading 0.64 gram gold per tonne on Lluvia’s Upper Zone, and 636,000 tonnes grading 1 gram per tonne on the Lower Zone. Inferred resources on the Upper Zone were pegged at 3.4 million tonnes grading 0.59 gram per tonne, and on the Lower Zone at 5.8 million tonnes grading 0.72 gram gold.

It’s not huge — if all that resource came out over a hypothetical 7-year mine life, it would pour less than 40,000 oz. a year — but the evidence from the metallurgical testing is that it can be done. If feasibility studies show it can be done profitably, then Columbia will go one better on previous operators.

‘Carlin-type’

The deposit itself might be characterized as “Carlin-type,” with disseminated gold mineralization in altered sedimentary rocks, mainly siltstones. Those host rocks, of Cretaceous age, are in a detachment block above a southwest-dipping thrust fault (another Carlinesque feature), bounded on two sides by normal faults. It is about 3 by 1 km in area, and just over 200 metres thick.

But Lluvia mineralization is strongly fault-controlled, particularly along a northeast-striking shear zone, and in small fractures. In his qualifying report on the resources, Columbia’s consultant Rodney Blakestad described it as “bulk tonnage in nature, with a propensity for higher-grade sections to be related to structural controls.”

Around the 6-sq.-km Lluvia property, Columbia has staked about 20 sq. km, and it has also consolidated the 5-sq.-km La Jojoba gold property into the land package. La Jojoba, about 4 km west of Lluvia, has been poked and prodded by several operators in the past, with over 19,000 metres of drilling done on it. The historical data was enough for Blakestad to put a resource estimate on the property. Based on the lowest cutoff grade, 0.25 gram, La Jojoba has 10.5 million tonnes grading 0.68 gram per tonne. A nudge up to 0.3 gram brings the resource to 9.1 million tonnes at 0.75 gram per tonne.

The La Jojoba purchase required that the last of a long series of legal problems be cleaned up. In the mid-1990s, Toronto-based junior Aquiline Resources (AQI-T, AQLNF-O) had held the property under an option from property holder Enrique Velez Redondo, but the relationship had soured and the two parties were in litigation over Velez’s dealing an option on La Jojoba to another company. Aquiline agreed to back away from the property in exchange for $500,000 and a 2% net smelter return, which can be bought out for $2 million. The Velez family then sold La Jojoba to Columbia for $1.5 million, a transaction that was completed in December.

Columbia did some drilling on La Jojoba’s Northeast Zone in 2006, which returned grades mainly around 1 gram per tonne over widths of a few metres up to 41 metres. It is seen as a potential satellite pit for the larger project to the east.

What Columbia is trying to create out of the ashes of an unsuccessful mine is a low-flying but profitable open-pit operation that meets the necessary design of a heap-leach system — in short, to take Lluvia’s 1990s game plan, but this time, to execute it.

Before mining started in 1996 consultants designed three pits that, cumulatively, had a stripping ratio of 0.9. Actual mining records support a similar figure. The ore zones were gently dipping to flat-lying, in keeping with the mineralization’s affection for low-angle structures.

Recoveries

Back in 1994, previous operators commissioned metallurgical testing by Kappes, Cassiday and Associates, using 3 tonnes of material from large-diameter drilling in what became the Creston pit. Recovery in bottle-roll tests was 93%, and column leaching — a test that duplicates heap conditions more closely — showed average recovery of 71% of gold even on relatively coarsely crushed material (75 mm). Working the crush size down to 6.3 mm brought recoveries to 85%.

Other tests showed 25% to 61% of the copper was acid-soluble, though Lluvia did not recover copper. To help make that happen, Columbia and BioteQ Environmental Technologies (BQE-V, BTQNF-O) have signed an agreement for BioteQ to provide a water treatment plant at Lluvia de Oro to recycle cyanide solution and to recover copper from the leach solution.

The plant produces hydrogen sulphide gas by a biological reaction process (from either a plain sulphur feedstock or from sulphuric acid). The gas can be used in reduction processes to bring copper out of solution as copper sulphide.

More recent testing suggests 45% of the copper in the Lluvia mineralization can be brought into solution, and that virtually all of that dissolved copper can be recovered from the leach solution.

BioteQ will build, own and operate the plant, which is expected to cost about US$4.5 million to build and US$1.3 million annually to operate. During its payback period, BioteQ shares all metal revenues with Columbia in proportion to each company’s capital spending, until BioteQ has recovered its capital costs plus 30%. After that, BioteQ keeps the copper revenue and sells back recovered sodium cyanide at US$1.87 per kg. After the operat
ion has produced 1 million lbs. (454 tonnes) copper beyond the payback period, Columbia begins to take a 10% cut of copper revenues, growing by 10% each time the plant has produced another million pounds. At 4 million lbs. cumulative production, the two companies split the revenue in half.

BioteQ and Columbia have estimated possible copper recovery at anywhere from 250 to 450 tonnes annually, meaning that at projected prices the plant could be paid off in under three years.

Columbia recently arranged a private placement of two convertible debentures, one of $1.1 million with London-based fund RAB Capital and another of $900,000 with GC Global Capital. The larger loan bears interest at 10% and the smaller at 12%, and both are convertible to units of one share and half a warrant at 30 per unit. Whole warrants are exercisable at 50, some for a year and some for a year and a half.

Other than that, Columbia reported $2.1 million in current assets, including $1.4 million in cash, at the end of September. Current liabilities were $1.2 million.